​​Possible recession – time to invest! But how?

What is the best thing to do amidst a possible recession if you are not approaching or in retirement? Invest, invest, invest! Invest for your fabulous upcoming vacations, ensuring you come home to cherished memories and incredible photographs and not a burden of debt. Invest in an emergency fund to ensure life does not catch you off guard with a sudden and unexpected job loss or health issues, to name two. Invest for your retirement to ensure you not only survive in retirement but also thrive in retirement. Invest now rather than waiting till it’s too late and trying to time the market to make up for prior years of missed opportunities to invest.

But now the question is how to invest? Here are several Individual Retirement Account (IRA) options:

1. Traditional IRA:

a. A tax-advantaged personal savings plan where contributions may be tax deductible.

b. Money is typically taxed at the time of withdrawal.

c. There are annual limits to the amount which can be contributed, amounts of which

are dependent on your age.

d. You will have to pay a 10% penalty in addition to taxes due if you withdraw from this

account before the age of 59 ½.

e. At the age of 72 (note, current proposed legislation may move this age to 75 – stay

tuned), you are required to take minimum withdraws from this account.

f. Let’s not even get started on the rules for beneficiaries of this type of account.

2. Roth IRA:

a. Also a tax-advantaged personal savings plan, but contributions are taxable.

b. If setup in accordance with IRS guidelines, money is not taxed at the time of withdrawal.

c. There are not only annual limits to the amount which can be contributed (also dependent on age) but also income limits for those eligible

to contribute to this type of account.

d. You will have to pay a 10% penalty in addition to taxes due if you withdraw from this account before the age of 59 ½.

e. You are NOT required to take minimum withdrawals from this account until after the death of the owner.

f. Unfortunately, the rules for beneficiaries apply to this type of account also….

3. Savings Incentive Match Plan for Employees or SIMPLE IRA:

a. Suited as a start-up retirement savings plan for small employers (less than 100 employees) not currently sponsoring a retirement plan.

b. Similar rules as with a Traditional IRA (see above)

c. Except acts more so like a 401(k) where employees make elective salary deferrals and employers make nonelective contributions.

d. Contribution limits more than with a Traditional IRA but less than with a 401(k).

4. Simplified Employee Pension or SEP IRA:

a. Setup by an employer, which can be YOU if you are self-employed. The employer makes contributions directly to this account set up for each employee.

b. Similar rules as with a Traditional IRA (see above)

c. Enables contributions in excess of the annual limits for a Traditional and Roth IRA. Best opportunity to invest a much greater amount in a tax advantaged savings plan.

d. Downfall – if your business has several employees, you must contribute to your employees SEP IRA the same percentage as you contribute to your own SEP IRA.

As for your vacation or emergency funds, probably best to not place those funds into an IRA due to the IRS rules/limitations. How about an individual or joint taxable account, which entails after tax contributions, taxable dividend and interest income in addition to taxable capital gains annually, whether withdrawn or not. Always have a portion of these accounts in cash to meet your short-term financial needs. And the remainder in investments. Timing is of the essence, though, as you don’t want to withdraw from your investments during a volatile market producing negative returns to meet current financial needs. Who knows, if not used over the years, this can be an instrumental component to your retirement plan, ensuring that you not only survive in retirement but also thrive.

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All information provided by Hartmann CFO, LLC and Healthy in Retirement is intended for informational purposes only. The views expressed are personal opinions and should not be construed as financial or tax advice for your specific situation. Please make sure to do your own research or find a trusted financial professional, tax adviser or attorney before making any financial decision on your own.

Neither Hartmann CFO, LLC, Healthy in Retirement nor its owners make any representations as to the accuracy or suitability of the claims made here. Nor does Hartmann CFO, LLC, Healthy in Retirement, or its owners assume any liability regarding financial results based on the use of information provided here.